14.4 Bilateral Monopoly
3 min read•june 24, 2024
Labor markets can get complicated when there's only one big employer and one big union. This creates a unique situation called a , where both sides have power to influence wages and jobs.
In this setup, the employer wants to keep costs down while the union fights for better pay. The outcome depends on who has more . This can lead to wages and job numbers that aren't ideal for everyone involved.
Bilateral Monopoly in Labor Markets
Monopsony, Union, Bilateral Monopoly
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- : single buyer of labor in a market faces an upward-sloping , giving it the power to set wages below the competitive level (coal mining town with one major employer)
- Union: organization representing workers' interests seeks to negotiate higher wages and better working conditions, can threaten to strike or withhold labor (United Auto Workers)
- Bilateral monopoly: labor market with a monopsony employer and a , both parties have and engage in bargaining (professional sports leagues)
- in a bilateral monopoly involves the monopsony employer aiming to minimize labor costs while the union aims to maximize wages and for its members, with the outcome depending on the relative bargaining power of each party
- Employment determination in a bilateral monopoly has the monopsony employer setting employment levels based on the negotiated wage, with higher wages leading to lower employment levels as the employer moves along its
Impact on Wages, Employment
- Bilateral monopoly: market structure with a single buyer (monopsony) and a single seller (monopoly), in labor markets the monopsony is the employer and the monopoly is the union (healthcare industry with a dominant hospital and nurses' union)
- Impact on wages: the outcome wage falls between the competitive wage and the monopsony wage, with the exact wage depending on the bargaining power of each party
- Impact on employment: employment levels are typically lower than in a competitive market, with the monopsony employer setting employment based on the negotiated wage and higher wages leading to lower employment as the employer moves along its labor demand curve (airline industry with powerful pilots' unions)
- Inefficiency in a bilateral monopoly arises as the outcome is generally inefficient compared to a competitive market, with a deadweight loss due to lower employment levels
Factors Influencing Bargaining Power
- Factors influencing union bargaining power include union membership and solidarity, the ability to strike or withhold labor, the availability of substitute workers, and public support and political influence (teachers' unions)
- Factors influencing monopsony bargaining power include the degree of labor market concentration, the , the availability of alternative employment options for workers, and the financial resources of the employer (tech giants in Silicon Valley)
- The relative bargaining power determines the outcome, with higher wages and lower employment if the union has more bargaining power, and lower wages and higher employment if the monopsony has more bargaining power
- External factors affecting bargaining power include economic conditions and the business cycle, labor market regulations and policies, and technological changes affecting labor demand and supply (gig economy platforms like Uber)
Key Terms to Review (20)
Bargained Wage: The bargained wage is the wage rate that is determined through the process of collective bargaining between employers and labor unions or worker representatives. It is the outcome of a negotiation process where both parties compromise to reach an agreement on the appropriate wage level for the workers.
Bargaining Power: Bargaining power refers to the relative ability of parties involved in a negotiation or transaction to influence the terms and outcomes to their advantage. It is a key concept in understanding the dynamics of bilateral monopoly, where the relative bargaining power of the monopolist and the monopsonist determines the final market equilibrium and distribution of surplus.
Bargaining Process: The bargaining process refers to the interactive negotiation between two or more parties, each with their own interests and objectives, to reach an agreement or compromise on a particular issue. It involves the exchange of offers, counteroffers, and concessions to find a mutually acceptable solution.
Bilateral Monopoly: A bilateral monopoly is a market structure in which there is a single seller (monopolist) and a single buyer (monopsonist). In this situation, both the monopolist and the monopsonist have significant market power and must negotiate the terms of the transaction, such as the price and quantity exchanged.
Collective Bargaining: Collective bargaining is the process by which workers, through their unions, negotiate with employers to determine the terms and conditions of employment, such as wages, hours, benefits, and workplace rules. It is a fundamental right of workers and a key feature of labor markets.
Elasticity of Labor Demand: Elasticity of labor demand refers to the responsiveness of the quantity of labor demanded to changes in the wage rate. It measures the percentage change in the quantity of labor demanded in response to a percentage change in the wage rate, holding all other factors constant.
Elasticity of Labor Supply: The elasticity of labor supply measures the responsiveness of the quantity of labor supplied to changes in the wage rate. It quantifies how sensitive the labor supply is to changes in the wage, reflecting how willing workers are to adjust the amount of labor they provide in response to changes in compensation.
Employment: Employment refers to the state of being engaged in a paid position or occupation. It is the act of being hired and compensated for the provision of labor or services, typically within the context of an employer-employee relationship.
Equilibrium Wage: The equilibrium wage is the wage rate at which the quantity of labor demanded by employers equals the quantity of labor supplied by workers in a labor market. It is the point where the demand and supply curves for labor intersect, resulting in a stable market clearing price for labor.
Labor Demand Curve: The labor demand curve represents the relationship between the quantity of labor demanded by employers and the wage rate. It shows how the quantity of labor demanded changes as the wage rate changes, assuming all other factors remain constant.
Labor Market Inefficiency: Labor market inefficiency refers to the suboptimal allocation of labor resources within an economy, where the supply and demand for labor do not reach an equilibrium that maximizes productivity and economic welfare. This can occur due to various factors, such as market power, information asymmetries, and government interventions.
Labor Supply Curve: The labor supply curve represents the relationship between the wage rate and the quantity of labor supplied by workers. It depicts the willingness of individuals to work at different wage levels, reflecting the trade-off between leisure and income.
Market Power: Market power refers to the ability of a firm or group of firms to influence the market price, output, and other market conditions. It is the degree to which a firm can exert control over the market by setting prices, restricting supply, or hindering competition.
Monopoly Union: A monopoly union is a labor union that holds exclusive bargaining rights for a particular industry or occupation, giving it significant market power to negotiate wages, benefits, and working conditions on behalf of its members. It is a unique situation where a single union represents all the workers in a specific market, creating a bilateral monopoly between the union and the employer.
Monopsony: Monopsony is a market structure in which there is only one buyer, the monopsonist, who has market power over the sellers, typically workers in the labor market. This allows the monopsonist to pay workers a wage that is lower than the competitive market wage.
Right-to-Work Laws: Right-to-work laws are state-level statutes that prohibit union security agreements, which require all employees in a unionized workplace to pay union dues or fees as a condition of employment. These laws give workers the option to opt-out of joining a union or paying union dues, even in workplaces where a union contract is in place.
Strikes: A strike is a work stoppage carried out by employees as a form of protest or to demand changes in their working conditions, wages, or other employment-related issues. Strikes are a key tool used by labor unions and workers to exert pressure on employers and negotiate better terms of employment.
Wage Determination: Wage determination is the process by which the price of labor, or the wage rate, is established in an economy. It involves the interplay of supply and demand for labor and the factors that influence these forces in the labor market.
Wage-Employment Tradeoff: The wage-employment tradeoff refers to the relationship between the wage rate and the level of employment in a market. It describes the inverse correlation between the wage level and the quantity of labor demanded by employers, as higher wages tend to reduce the number of workers firms are willing to hire.
Work Stoppages: Work stoppages refer to the temporary cessation of work by employees as a form of protest or negotiation tactic, often in response to unresolved labor disputes or grievances. These stoppages can take the form of strikes, lockouts, or other disruptions to the normal operations of a workplace.